White v James Hardie New Zealand Limited
[2021] NZHC 936
•30 April 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2015-404-2981
[2021] NZHC 936
BETWEEN KAREN LOUISE WHITE AND THE PERSONS LISED IN SCHEDULE 1
PlaintiffsAND
JAMES HARDIE NEW ZEALAND LIMITED
First Defendant
STUDORP LIMITED
Second DefendantContinued next page
Hearing: On the papers Counsel:
S Hunter QC, S Hughes QC, A Thorn and R Havelock for Plaintiffs
J Hodder QC, J McKay and L Fraser for Defendants
Judgment:
30 April 2021
JUDGMENT (NO 10) OF WHATA J
Re: Security for costs
This judgment was delivered by me on 30 April 2021 at 11.30 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ………………………….
Solicitors: Adina Thorn Lawyers, Auckland
Chapman Tripp, Auckland
WHITE v JAMES HARDIE NEW ZEALAND LIMITED [2021] NZHC 936 [30 April 2021]
JAMES HARDIE NZ HOLDINGS LIMITED
Third Defendant
RCI HOLDINGS PTY LIMITED
Fourth Defendant
JAMES HARDIE AUSTRALIA PTY LIMITED
Fifth Defendant
JAMES HARDIE RESEARCH PTY LIMITED
Sixth Defendant
JAMES HARDIE INDUSTRIES PLC
Seventh Defendant
[1] In my Judgment (No 3) in these proceedings, I made an award for security for costs based on 3C scale for all attendances up to and including Stage 1 discovery and inspection against the plaintiffs’ litigation funder, Harbour Fund II, L.P (Harbour) and the plaintiffs.1 Further to this order, the sum of $250,000 has been posted. Since then, the defendants (collectively, James Hardie) have made two further applications for security, on 24 April 2020 and 30 September 2020. The applications together seek security in the sum of $3.25m. Until recently, it was hoped that further security might be agreed, the plaintiffs accepting that there should be a further order and offering cash security in the sum of $1,099,595. That offer is not acceptable to the defendants and judgment on their applications is therefore sought.
Background
[2] This is a large and complex matter illustrated by the fact that this is the tenth pre-trial judgment and there have been some 58 minutes issued for case management purposes. The discovery process undertaken, as set out in my Judgment (No 8)2 was, in short, massive. The trial is due to commence on 17 May 2021 and has been set down for 15 weeks.
[3] As recorded in my Judgment (No 3), the plaintiffs are supported by the litigation funder, Harbour, and they hold “after the event” (ATE) Insurance for $5.5m from QBE Insurance (Europe) Limited and Brit Global Speciality (Syndicate No 2987).3 Harbour is Europe’s largest litigation funder and a signatory to the Code of Conduct for Litigation Funders in the United Kingdom.4
[4] In the same judgment, I recorded my reasons as to why security should be ordered in respect of the pre-trial stage of the litigation, namely:5
(a)there was inherent jurisdiction to make an order against an overseas resident litigation funder;
1 [2019] NZHC 188 at [24] [Judgment (No 3)].
2 [2020] NZHC 2202 [Judgment (No 8)].
3 Judgment (No 3), above n 1, at [4].
4 Judgment (No 3), above n 1, at [4].
5 Judgment (No 3), above n 1, at [11]-[21].
(b)notwithstanding ATE Insurance, James Hardie is exposed to a very heavy cost burden and potentially a very complex and demanding enforcement process; and
(c)whatever its terms, the ATE Insurance cannot offer the same security as payment into Court; and
(d)as to quantum, security should be based on scale 3C for all attendances up to and including Stage 1 discovery and inspection on the basis that this adequately reflects the burden on James Hardie, applying orthodox litigation cost principles and noting that it broadly aligns with the approach taken by Dobson J in Houghton v Saunders.6
Argument
[5] Given the way matters have unfolded the central issue is quantum. Put simply, James Hardie claim that security in the sum of $3.25m is appropriate given:
(a)The discovery process has exceeded all expectation in terms of costs, noting that, as at July 2020, discovery had cost in excess of $3m (including legal fees and disbursements) and the Court enjoys inherent jurisdiction to vary the existing security order.7
(b)Costs awards in large scale litigation can be substantial:
(i)In Mainzeal v Yan8 the plaintiffs received costs for 67 days as against 167.7 actual days, ie, an allowance of 41.2 per cent as well as 100 per cent recovery on disbursements in relation to e- discovery platform document management.
6 Houghton v Saunders [2013] NZHC 1824 from [104].
7 Citing Stead v The Ship “Ocean Quest of Arne” [1995] 3 NZLR 415 (HC); Cargill NZ Ltd v Palmerston Wool Co Ltd (1997) 11 PRNZ 52 (HC); O’Malley v Garden City Helicopters Ltd (1994) 8 PRNZ 182 (HC) at 184 and 186; Stokors SA v IG Markets Ltd [2012] EWHC 1684 (Comm) [Stokors].
8 Mainzeal Property and Construction Ltd v Yan [2019] NZHC 1637 at [43]-[45].
(ii)In Trustpower v CIR,9 the court allowed for 70 days as against a total of 201.6 days or an allowance of 34.7 per cent, as well as 50 per cent recovery for disbursements related to electronic discovery support services.
(c)Expected scale costs to the end of the Stage 1 hearing are estimated as follows:
Relevant Step Days Cost Answer to interrogatories 4 $14,120.00 Preparation of briefs, list of issues, authorities, and agreeing common bundle 100 $189,737.50 Preparation for hearing 100 $189,737.50 Appearance at hearing for sole or principal counsel 100 $353,000.00 Second and subsequent counsel if allowed by court 100 $176,500.00 Second and subsequent counsel if allowed by court 100 $176,500.00 TOTAL 504 1,099,595.00
(d)Estimated expert costs of $1,100,000 (assuming 22 experts at $50,000 per expert).
[6]The plaintiffs oppose the applications on the following bases:
(a)Jurisdiction: there is no proper basis to revisit the security order already made in relation to discovery and inspection, and given that no rule in the High Court Rules 2016 provides for variation of that order, there has been no material change in the circumstances of the claim or the
9 Trustpower v Commissioner of Inland Revenue [2014] 3071 at [26]-[27].
parties. It follows the defendants are now estopped from reopening the issue. Security for costs should be prospective not retrospective,10 and, in addition, the amount claimed is excessive - multiple times any 3C scale costs;
(b)Length of hearing: James Hardie’s calculation is incorrectly premised on a trial of 100 hearing days, whereas the Court has directed the hearing will be 15 weeks, or 75 days. Therefore, a reduction of 25 per cent is appropriate as per the following table:
10 Citing Ambrose v Pickard [2009] NZCA 502.
(c)Expert disbursements: the plaintiffs accept security should include reasonable disbursements. However, they say the defendants have baselessly asserted each expert witness will cost $50,000 without providing evidence to support those calculations.
(d)Global amount: the plaintiffs say that James Hardie’s sum is based on approach taken in Walker v Forbes11 (in which no reasons were given) and does not take into account the circumstances applying including that overseas witnesses will be unable to travel in the present case so disbursements for expert witnesses does not need to include airfare and accommodation costs.
(e)Insurance and previous offers: the plaintiffs note that James Hardie have the benefit of insurance in the order of $5.5m for adverse costs, which remains relevant to the issue of quantum – noting that the High Court has taken ATE insurance into account and significantly reduced quantum of scale based security for costs by up to 60 per cent in previous cases.12
Assessment
[7] Dealing first with the 24 April 2020 application to uplift the security in respect of the discovery process, I do not accept that the defendants are estopped from seeking a variation to the existing order for security. The purpose of security for costs is to provide meaningful protection in relation to costs.13 That purpose could be defeated if an security provided becomes manifestly inadequate and not adjusted accordingly. But, as stated by the Court in Stokors:14
…. where a security for costs up to a particular stage of proceedings has already been provided, a defendant who applies to increase the amount of security for the costs of that same stage in proceedings will generally have to justify a further order by reference to circumstances which did not exist or were not apparent at the time the order was made. For it to be just to order further security, a defendant will generally have to show a material change of
11 [2017] NZHC 1212 at [96].
12 Citing Langton v Raytheon Polar Services Ltd CIV-2009-409-2666.
13 Wishart v Smallbone [2020] NZCA 434 at [52].
14 Above n 7, at [13].
circumstances from those which pertained or were envisaged when the matter was before the court making the order.
[8] The Court in Stokors also identified a three-step process for assessing whether a variation was justified:15
(a)identify the additional costs of the disclosure over and above the costs of that exercise estimated when the first order was made;
(b)assess whether there has been a material change in circumstances which makes it just to award further security for costs; and, if so,
(c)determine how much of the additional cost of the disclosure exercise, both incurred and anticipated, should form the subject matter of further security.
[9] I am content to adopt this approach. First, James Hardie’s original application sought security in the sum of $350,000 which formed the starting point for the assessment. In retrospect, that starting point was manifestly inadequate. Second, I accept that discovery process that subsequently unfolded was very large and complex. I need only refer to summary of the discovery process in my Judgment (No 8) at [19]- [114].16 And, while a large discovery process was inevitable, the scale and complexity of the discovery process that eventually unfolded was not anticipated by parties. That scale and complexity is evident from the duration of the discovery process and the multiple applications and associated hearings. I therefore consider that there has been a sufficient change in circumstances to justify revisiting the first order. The third step, quantum, is addressed below.
[10] Turning to security for the trial, I accept that the sum claimed in respect of the trial process should be reduced to account for the fact that it is now a 15-week hearing. I also accept that a global claim of $50,000 for every expert is unscientific and any order for security should reflect the fact that many (if not all) of the overseas experts are scheduled to give evidence via VMR. Also, since September 2020, the Waitakere
15 Above n 7, at [15].
16 Above n 2.
proceedings have been uncoupled, and the Waitakere plaintiffs remain liable for their share of the discovery costs.
[11] Turning then to quantum, as noted by the authors of McGechan on Procedure, insofar as past awards of security are a legitimate guide, they generally represent some discount on the likely award of costs calculated under sch 3 of the High Court Rules.17 Plainly, given where I have got to on pre-trial discovery issues, security in respect of a given step may exceed the quantum of costs available under that schedule. But experience serves as a reminder that, generally, security is not a full indemnity against scale or actual costs. Rather, security should be set at a realistic figure that provides meaningful protection in relation to costs at trial, while recognising that it can be difficult to quantify those costs.18
[12] There is a further factor. When I came to my decision in respect of the first order, I did not consider that the availability of ATE insurance to be a reason not to make an order for security. But, at that time, James Hardie were not seeking an order for security in excess of $1m for discovery and $2m for the trial stage. To my mind, orders of this magnitude must bring into closer scrutiny to the real risk to the party seeking security and the extent to which an award of that scale is just, having regard to the burden placed on the party who must provide the security. The scale of the claim is an obvious countervailing factor. Nonetheless, a realistic approach to risk is required.
[13] In the present circumstances, including the scale of the claims, the plaintiffs’ legitimate interests, Harbour’s evident creditworthiness, the ATE insurance, the scale and complexity of the discovery process and the trial, and the defendants’ legitimate concern about enforcement, I consider that a realistic and just order for security for costs should be uplifted by of $1.25m comprising:
17 AC Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [HR5.45.07] and cases cited therein.
18 Wishart v Smallbone, above n 13.
(a)an additional $500,000 in respect of discovery (or a total of $750,000 which represents approximately 50 per cent of the White plaintiffs’ share of the cost of discovery as at July 2020);19 and
(b)$750,000 in respect of expected scale costs and expert disbursements to the end of the Stage 1 hearing (or about 50 per cent of estimated costs of the reduced hearing (about $700,000)20 and (after adjustment) for expert costs ($800,000).21
[14]That sum brings the total security to $1.5m. This provides adequate protection.
[15] I make no stay order. However, I grant leave to revisit this aspect if the security is not posted within 15 working days.
[16]Success on the applications have been evenly shared. Costs lie where they fall.
19 This should not be seen as a definitive ruling as to the allocation of discovery costs between the
White and Waitakere plaintiffs.
20 I have not allowed for third counsel (without precluding that possibility) and assuming a 15-week hearing.
21 Assuming that with reduced travel requirements, substantial savings can be made.
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